The Federal Government has approved the biggest increase in private health insurance premiums in almost a decade, blaming an increase in claim costs it said was putting the industry under pressure.

Just two days before Christmas, Health Minister Peter Dutton revealed he had given the green light for the nation’s 34 private health funds to increase their premiums by a hefty 6.2 per cent from 1 April.

The increase is the largest since 2005, and follows an average 5.6 per cent premium hike last year.

Insurer NIB revealed it would raise its premiums by 8 per cent, while the nation’s largest private health insurer, Medibank Private, said its premiums would increase by an average of 6.5 per cent, and the third major health fund, Bupa, planned an average 6.4 per cent lift.

The increases are likely to hit many policyholders hard, including thousands who had paid their premiums up to 18 months in advance to secure the maximum Commonwealth rebate before new means-testing rules kicked in.

Compounding this, those ineligible for the rebate under the means-testing rules may not get relief from the new rules as quickly as the Coalition had indicated prior to the election, when it promised to overturn the means-testing legislation in its first term.

In its Mid-Year Economic and Fiscal Outlook, the Government revealed rebate spending would be $873 million greater than earlier anticipated, and Mr Dutton indicated the withdrawal of rebate means testing may be delayed beyond the Coalition’s first term in office.

Mr Dutton said the Government had closely examined the premium increase application of each insurer, and the rise was necessary to ensure the viability of the industry.

During 2013 the industry experienced a higher than expected level of claims, which pushed the overall cost of benefits up by 8 per cent, the Minister said.

He said the magnitude of the increase would help the industry absorb its highest costs, and expressed confidence that competition in sector was intensifying and would keep premium increases as low as possible.

But there are concerns that competitive pressures in the industry are insufficient, and could be further diluted by the proposed privatisation of Medibank Private.

The Federal Government has commissioned a scoping study into the possible sale, and the AMA is among those apprehensive that unless it is conducted carefully it could lead to a diminution of competition within the sector, leaving consumers exposed to even greater premium increases in future.

Shadow Health Minister Catherine King said it was “entirely cynical for the Abbott Government to sneak [the premium increase announcement] out two days before Christmas”.